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Poland, Belarus & Ukraine Report: August 23, 2006

August 23, 2006, Volume 8, Number 29
SOCHI GAS TALKS SHORT ON CONCRETE FORMULAS. Ukrainian Prime Minister Viktor Yanukovych has announced that Russia and Ukraine have agreed to keep the current gas price for Ukraine until the end of 2006.

He also says that he and Russian Prime Minister Mikhail Fradkov have agreed to base the price of gas on market principles, but he left observers guessing about the price Ukraine will have to pay for imported gas in 2007.

Meeting on the sidelines of an informal summit of the Eurasian Economic Community hosted by Russian President Vladimir Putin in Sochi on August 16, Yanukovych and Fradkov seemed pleased with each other.

But Yanukovych was enigmatic about the price of gas for Ukraine -- the main topic of the talks. "The [gas] price will be market-based, of course, but the mechanism of its formation will be transparent and certainly adequate to the level of economic relations between Ukraine and Russia," Yanukovych told reporters on August 16.

It is not clear what he had in mind by linking prices to "the level of economic relations," although some observers speculate that it could suggest greater Ukrainian involvement in the formation of a post-Soviet Single Economic Space, an idea championed by Russia, Kazakhstan, and Belarus.

Fradkov also linked the price of gas in part to "the prospects of developing our cooperation in the future in the field of gas and other sectors of the economies of our countries."

As for this year, though, Yanukovych was insistent. The price of imported gas would not exceed the current level of $95 per 1,000 cubic meters.

Since Gazprom nominally charges $230 per 1,000 cubic meters of Russian gas for Ukraine, while Turkmenistan sells its gas to Gazprom at $65 per 1,000 cubic meters, the current price of $95 means that the share of Russian gas in the Russian-Turkmen mix supplied to Ukraine does not exceed 20 percent.

Yanukovych appeared to suggest in Sochi that there will be no steep rise in 2007. Without giving details, he said that he and Fradkov had established "the price parameters" for gas supplies in the coming year.

Fradkov was also vague. "We have a clear desire to find solutions to all of the difficult issues [between Russia and Ukraine], but we must be guided by a market approach and by a willingness to clarify the prospects of developing our cooperation in the future in the field of gas and other sectors of the economies of our countries," he said.

This may mean that Moscow is in no hurry to reward Yanukovych -- whose political comeback this year is widely perceived as a triumph of the pro-Russian forces in Ukraine -- with preferential terms in gas supplies.

Energy expert Volodymyr Saprykin of the Razumkov Center in Kyiv believes Yanukovych's visit to Sochi had more of a ceremonial than a practical character. "A visit is significant if it is followed by the signing of a number of documents," Saprykin says. "No document has been signed. And the statements were very cautious. We have not heard any confirmation by the Russian side that the price of gas for Ukraine will actually remain unchanged until the end of this year."

So is Moscow reassessing Yanukovych, the man it supported so firmly during his first premiership of 2002-04?

Before becoming prime minister earlier this month, Yanukovych signed a "declaration of national unity" with President Viktor Yushchenko, in which he promised to maintain Ukraine's course of integration with the West and abandoned his election pledge to give Russian the status of official language in Ukraine.

When asked in Sochi about the status of Russian, Yanukovych said the ruling coalition will return to the issue as soon as it gains a constitutional majority (300 votes) in the 450-seat Verkhovna Rada. Given the current alignment of forces in the Ukrainian parliament, this is unlikely to happen soon.

Lawmaker Yuriy Klyuchkovskyy from the pro-presidential Our Ukraine told RFE/RL that Yanukovych will be under close scrutiny by allies and opponents alike. "[Yanukovych's statement in Sochi on the Russian language] was either a renunciation of the declaration of national unity or an attempt to fool everyone else," Klyuchkovskyy said. "I hope he realizes very well that this will not happen."

In other words, Russian gas supplies to Ukraine in 2007 are unlikely to be a purely economic issue. As so often in the past, the problem will almost certainly involve a wide range of other concerns, linked to Ukraine's political, historical, and linguistic choices and preferences. (Jan Maksymiuk, with contributions from Tetyana Yarmoshchuk of RFE/RL's Ukrainian Service)

KREMLIN ATTEMPTS TO GET UKRAINE BACK IN ITS ORBIT. It was perhaps no coincidence that Ukrainian Prime Minister Viktor Yanukovych's meeting in Sochi with his Russian counterpart, Mikhail Fradkov, coincided with an informal meeting of the Eurasian Economic Community (Eurasec) -- an organization Ukraine is not a member of.

It looks like Moscow is working hard once again, since the appointment of the pro-Moscow Yanukovych, to bring Ukraine back into its orbit.

Yanukovych was in Sochi for talks with Russian Prime Minister Mikhail Fradkov about the price Ukraine will pay for Russian gas. On August 16, Yanukovych announced that both sides agreed to keep the current gas price for Ukraine until the end of 2006.

Eurasec was created in 2001 to further the economic integration of former Soviet republics. The organization is seen by the Kremlin as a way to restore its political and economic clout, not only over Central Asia but in the European part of the former Soviet Union. It comprises Russia, Belarus, Kazakhstan, Uzbekistan, Tajikistan, and Kyrgyzstan.

Although Russia has made some gains in Central Asia, with the help of its ally Kazakhstan, it has had little success westward. Its only ally to the west, Belarus, cannot play the role of middleman with the European Union because of the isolated regime of Belarusian President Alyaksandr Lukashenka.

In terms of influence to the west, Ukraine is the key. In 2003, the Kremlin advanced the idea of the Single Economic Space (SES), an idea supported also by Belarus and Kazakhstan.

The weak and corrupt administration of Ukrainian President Leonid Kuchma signed the SES accord, but Ukrainian interest waned after Kyiv shifted its foreign-policy orientation to the West after the country's 2004 Orange Revolution.

Thus, with a new pro-Moscow Ukrainian prime minister, Moscow put its cards on the table. Konstantin Zatulin, a Duma deputy and director of the Institute for CIS Studies, said that "Despite the impression that the energy issue dominated, the topic of Ukraine's integration should not be forgotten," reported on August 16.

Another important issue on the Eurasec summit agenda was the creation of a Eurasian hydro-energy consortium.

Eurasec is one of the few mechanisms with which Moscow attempts to ward off Chinese and U.S. influence in the region. And the creation of a hydro-energy consortium under Russian leadership is an ideal tool.

Water is a potentially explosive issue in Central Asia. Uzbekistan and Kazakhstan are the region's main fresh-water consumers, while up to 80 percent of the region's water resources belong to Kyrgyzstan and Tajikistan. To avoid conflicts over water, Russia has suggested creating a supranational hydro-energy consortium that will regulate the use of water resources and intervene if conflicts arise.

Russia, with 24 percent of the world's fresh-water resources, can use water as a political lever, just as it has already done with oil and gas. Moreover, the choice of water as a weapon gives Russia the edge over China, which itself suffers from an acute fresh-water deficit.

Because of the sensitivity of this issue, it was discussed behind closed doors. The leaders were briefed about the project but no details were made public.

Also under discussion was the creation of a joint customs union, which would eliminate border duties between member countries. It was decided that Russia, Kazakhstan, and Belarus would be the first members of the union, providing their parliaments approved. The other Eurasec states will join the process later.

Since Moscow failed to get Washington's consent to join the World Trade Organization (WTO) at the July Group of Eight (G8) summit in St. Petersburg, the Kremlin has pushed for the creation of a customs union. Among Eurasec states, only Kyrgyzstan is a member of the WTO, with Russia, Kazakhstan, and Ukraine on the verge of joining.

With WTO membership delayed probably until the end of 2007, Russia is pushing to become a big regional economic player. The customs union -- which could be a prototype for an all-ruble zone -- is just one way of doing this. (Victor Yasmann)